Fixed Assets

Question 1

They are expensed in the period incurred and are not capitalized.

Answer 1

Fixed Assets

Question 2

All expenditures to get the building into working condition are ready for use

Answer 2

Fixed Assets

Question 3

All expenditures to get the land ready for its intended use:

Title & County Fees

Clearing of Land - Dirt work etc.

Demolition and removal of old buildings (minus any scrap or salvage)

Note: capitalized land costs are not depreciated

Answer 3

Fixed Assets

Question 4

If the cash flows from the assets exchanged are not significantly different no gain or loss is recognized on a non-monetary exchange as it lacks commercial substance.

The new asset is recorded at the book value of the asset given up.

The only gain that can be recognized is any boot (cash) received.

Answer 4

Fixed Assets

Question 5

If resulting cash flows are significantly different then the transaction has commercial substance and a gain/loss is recorded on the exchange.

The new asset is recorded at the FAIR VALUE of the assets given up unless the asset acquired has a fair value that is easier to determine.

Answer 5

Fixed Assets

Question 6

Recorded at Fair Value + costs associated with getting the property into working condition for its designed purpose

Exam Tip - Think of a charity holding afair and then donating the property which is then recorded atfair value

Answer 6

Fixed Assets

Question 7

Recorded at Fair Value of asset given up.

Gain or Loss is recorded.

Answer 7

Fixed Assets

Question 8

1 / (Useful Life x 2 x Book Value)

Ignore salvage value.

Answer 8

Fixed Assets

Question 9

(Cost - Salvage Value) x (Remaining Useful Life / SYD) : Depreciation expense

For example the depreciation factor for the third year of a 10-year asset would be:

: 8 / (10+9+8+7+6+5+4+3+2+1) : 8/55 : 14.5%

Remaining useful life : 8 SYD : 55

Answer 9

Fixed Assets

Question 10

(Cost - Salvage Value) / Useful life : depreciation expense

Answer 10

Fixed Assets

Question 11

When the un-discounted future cash flows are less than the carrying value of the asset.

Carrying Value - Fair Value : Impairment Loss

Note: impaired assets that recover their value can’t be written back up once written down

Answer 11

Fixed Assets

Question 12

If the patent is SUCCESSFULLY defended the legal fees are amortized over the patent’s economic life.

If unsuccessful they are expensed immediately.

Answer 12

Fixed Assets

Question 13

Compare the CV to the FV. If FV is greater than CV no impairment exists you’re done.

If impairment appears to exist the assets and liabilities should be compared to the total value of the reporting unit. The difference is Goodwill. Compare this amount to the CV of the Goodwill and write it down accordingly.

Answer 13

Fixed Assets

Question 14

Expenses prior to technological feasibility are expensed as R&D.

After technological feasibility but prior to production costs are capitalized.

Expenses incurred during production are charged to inventory.

Expenses incurred training on internal use software are expensed.

Answer 14

Fixed Assets

Question 15

All expenditures to get the asset into working condition and ready for use:

Purchase price + liabilities assumed
Shipping
Taxes
Insurance
Installation
Testing
Legal fees
Construction loan interest

Any alterations to existing facilities or equipment necessary for the new purchase and installation that extend the life or increase the efficiency of these assets are capitalized.

Answer 15

Fixed Assets